Key features of an exporting SME on the island of Ireland

Published: September 2013

Executive Summary  

The objective of the study is to identify key characteristics present in successful exporting SMEs, assess the extent to which cross-border exporters have moved onto other markets ‘off the island’ and gauge the impact that cross-border trade and exporting activity has on the  overall performance and capabilities of the businesses. The research for this study has drawn primarily on the experience of companies that have participated in the trade programmes of InterTradeIreland, Enterprise Ireland and Invest Northern Ireland. They key findings of the research are summarised below.

Importance of cross-border market

• The cross-border market is particularly vital for small firms. Nearly two thirds of the exports of small firms in Northern Ireland go to Ireland while almost a sixth of the exports of small firms in Ireland go to Northern Ireland.
• The cross-border market is also critical for the first-time exporter in both jurisdictions. Cross-border sales represent the first export market for almost three-quarters of businesses across the island (73%), with 90% of Northern Ireland firms taking their first export steps in the Irish market and two thirds (63%) of Irish exporters taking the same steps in the opposite direction.
• The experience gained in cross-border trade acts as an export stepping stone for a majority of firms. It has had a significant influence on the development of additional export markets in 71% of businesses.
• Over one-third (35%) of those businesses with existing cross-border or off-island sales have expanded into additional markets in the past three years and 42% of all firms surveyed are actively looking to develop new or further export markets.

Key characteristics of exporting SMEs

Exporting SMEs tend to be more innovative, more strategic and crucially are led by Key Decision Makers that have a greater drive to grow. Moreover, they are more likely -with experience- to devote resources to the export effort of the business.

• Businesses with export activity ranked themselves as very good or excellent in the following attributes:

1. Willingness to adapt, innovate and change - particularly in new products, routes to market
   and branding/packaging (84%)
2. Willingness to collaborate with others in developing exports (80%);
3. Ability to explain their key value proposition (79%) and
4. Appetite and ambition of senior management to develop export markets (75%). 

• Results from the survey are consistent with existing research affirming that for many SMEs, the key factor determining if a company will export is the drive and aspiration of the Key Decision Makers in the business.
• Exporters are, on average, twice as likely as non-exporters to have a written strategy or business plan. However, while the majority of export-oriented businesses have a structured and strategic approach to their business and their exporting activity, this proportion grows significantly with experience in exporting.
• Fewer inexperienced than experienced or new exporters rated themselves very good or excellent in having specific export objectives, having a process for managing market entry or having estimated the costs of export development. This finding suggests that exporting begins as an ad-hoc and opportunity-driven action rather than a strategic decision.

Export barriers and supports

• More than half of respondents identified a lack of internal financial resources, access to external finance and awareness of available supports and market knowledge as the main challenges to exporting.
• Businesses repeatedly cite the lack of resources as a barrier to export growth, particularly a dedicated, on-the-ground resource in the target market. The resource issue is heightened by current pressures on cash flow and the need to see a commercial return from new markets within a short timeframe.
• Consequently, businesses state that the main form of support they require is the provision of resources, such as market knowledge, additional finance or networking assistance. The firms interviewed prioritised a particular type of resource: senior individuals typically based in the target market, who had existing experience of the sector, along with a clear understanding of how the market worked and how business was done, with extensive networks and access to clients.

Conclusions

The report sets out six key lessons that should be considered in terms of policy and programme development in order to encourage more non-exporters to become exporters and to develop the capabilities of inexperienced exporters:

1. The importance of Key Decision Makers (KDMs) to businesses becoming successful exporters. Agencies should assess the characteristics of the KDMs, particularly their ambition and aspiration to grow, as a criteria in selecting companies to support. In addition, management and leadership programmes are a significant element in the agencies’ offerings and provide an opportunity for opening up supports on a cross-border basis to businesses.

2. There is a pathway to exporting with cross-border trade being the first step for a significant majority (73%) of firms, many of whom subsequently go on to expand into markets off the island,  particularly GB but also the Eurozone and North America. This suggests that the border might be used as a stepping-stone to exporting further afield and that these businesses are encouraged to progress along the pathway from cross-border trade to off-island exporting.

3. The report identifies the need to develop capabilities, particularly in the areas of innovation and strategy, so that inexperienced and new exporters can move on to greater success off the island. Agencies should consider how to better integrate innovation programmes with export development and consider the extent to which a company has adopted innovative practices as selection criteria for export support. In terms of strategy, there is recognition that companies will base exporting decisions on the immediate opportunities. However, in the longer run supports need to embed a more strategic approach into company capability as this will be key to further success.

4. Far and away the most important resource required by businesses is the availability of experienced in-market resources offering identification of opportunities and immediate access to potential clients or customers. Agencies should explore the means by which experienced sales resources can be accessed by the first-time and inexperienced exporters. These supports need to be linked to the direct involvement of a senior management resource with responsibility for planned export activity.

5. Businesses expressed an interest in collaborative working with other partners in order to develop and exploit market opportunities, including the provision of a complementary product, capability or service that would enable all partners to export more effectively and efficiently. The development of such partnerships could be explored on a North/South basis.

6. The survey results reveal that experience is an important factor in how businesses develop or acquire the strategic attributes necessary to become a successful exporter. Support programmes should be tailored to the level of export experience of businesses and cover their needs in the transition from an non- exporter to an inexperienced or experienced one. For example, participation on a trade mission would be too daunting and less beneficial for most first-time or inexperienced exporter. However, participation in a tailored ‘market study trip’ in which the business gains both international exposure and a taste of the market will allow them to take an informed next step (i.e. develop a export strategy for that market or keep looking for alternatives).